What is trading?

Trading is the process of buying and selling. It is done in a market where buyers and sellers from around the world are each buying and selling financial products. To avoid a free-for-all, trading is carried out through a broker who carries out your instructions on what to buy and sell and at what price.

The financial products vary, the largest market of all is the buying and selling of currencies, often referred to as Forex or FX. Markets also exist where government debt (bonds) is traded.

Other markets exist for shares, for example the London Stock Exchange for UK listed shares, or the New York Stock Exchange for American shares. Most countries have their own stock exchange. Shares can also be traded through different indices. There are further markets for commodities, for example, oil, gold, copper, sugar, cocoa, rice, soya, etc.

Whichever market you decide to trade, the objective is to buy at a lower price than you sell, thus making a profit. If you sell at a lower price than you buy, you will make a loss. In trading, you always decide the price at which you will sell before deciding whether to buy, because only then can you make the decision whether or not the instrument is worth purchasing.

The main focus of Plan B’s trading courses are Forex trading and indices. You will be able to trade the same strategies on other markets too, as you learn trading from the ground up.

What is the difference between trading and investing?

In some respects, both trading and investing can have the same goals, i.e. to use existing money to create a larger pot of money. But they differ in some fundamental aspects.

When investing, you are acquiring an asset at a given price with the expectation that the value will appreciate over a period of time. That time period could be weeks or months, but is as often as not measured in years or decades.

Investments may include holdings of foreign currencies. More common investments are savings, shares, property, art, fine wines, antiques, etc. Some of these investments have a value other than financial, e.g. property, art, antiques. The cost of dealing in some assets can be high, for example, legal costs on property. Also, it may take considerable time to turn some assets back into usable cash, e.g. selling property.

Trading uses cash by buying something with the express intention of selling it again, very quickly and banking a profit. You don’t care what the asset is as you will seldom take ownership of it. Trade duration is measured in minutes or hours, less often in days or weeks. Liquidity is paramount as you need to know there will always be a ready buyer.

The currency or Forex market meets these criteria, being very liquid, a 24-hour market and having exceptionally low transaction costs. Some shares and commodities are also suitable for trading, although transaction costs may be a little higher.

What is Forex?

We are often asked: What is Forex?” so hopefully we can answer that question here.

Forex is simply an abbreviation of Foreign Exchange. It is also called FX or currencies. Most people have some experience of trading FX when travelling abroad. You change one currency into another, for example, changing Euros into US Dollars if you were travelling to the USA from the Eurozone.

This kind of transaction takes place in huge volumes around the world each day. People travelling around the world only accounts for small volumes of currency exchange. Far greater volumes are caused by commerce, as imports and exports are priced in different currencies. Forex supports the global economy enabling different bodies within different countries to do business together.

Exchange rates clearly matter to organisations and may affect their profitability. However, exchange rates do not generally determine whether a transaction takes place or not. For example, a car manufacturing plant imports components because it needs them to keep production going. It will not delay the purchase indefinitely because the exchange rate has changed.

Traders trade movements in exchange rates, in effect speculating that one currency will appreciate against another currency. Trading is discretionary. A large car plant might have currency traders to hedge against adverse currency movements. Whilst contributing financially, this type of trading is not an essential part of keeping the car plant operating.

What is a Forex account?

A Forex account is commonly used to trade currencies. You make a deposit of funds into the account and then use these funds to buy and sell currencies, profiting from exchange rate movements. Leverage is used to boost your purchasing power in the markets.

Forex accounts use “lots” as their standard unit of trade. So you can buy 1 lot, 2 lots, 3 lots of currency, etc. A lot is a unit of 100,000 of the first named currency (base currency) in a currency pair. A trade on EURUSD (Euro and US Dollar) would have a lot size of 100,000 Euros. 10 lots would be a million euros.

You can choose between a mini account and a micro account to trade smaller amounts of currency. The mini account has a minimum trade size of 0.1 lots (10,000 of the currency traded), the micro account has a minimum trade size of 0.01 lots (1,000 of the currency traded).

The trade size increment in Forex accounts is normally 0.01 lots. This means you could trade 0.16 lots in both a mini account and a micro account. You could trade 0.08 lots in a micro account, but this is below the minimum trade size for a mini account.

Leverage is a common feature of currency accounts. Often quoted as a ratio, leverage specifies the multiplier on your funds for trading. A leverage of 100:1 means you can trade up to 100 times the value of the funds you have available in your account.

It is possible to obtain leverage of 500:1, meaning you can trade 500 times the amount of the funds deposited in your account. Or put another way, you need one five-hundredth of the amount traded as a deposit. This means a trade of $1 million is possible for a deposit of $2,000.

Plan B Forex courses are great for learning the skills of trading. Forex trading courses include trading FX through a Forex account. You will learn to trade with low risk and control the leverage to use it for your benefit.

See the FAQ: “What is Forex?”
See the FAQ: “What is a spread betting?”

What is Spread Betting?

We’re often asked the question: “What is Spread Betting?” so hopefully we’ll be able to help on this page.

Spread betting is one of the methods to trade the financial markets. It is very popular with UK and Irish traders as it offers some tax advantages. But it is not the only way to trade the markets.

With spread betting, you take a view on whether a currency (or share) is going to rise or fall in value. You then place a trade predicting the price to go up or down. Part of the trade specifies some money for each price increment (e.g. penny, cent) the price rises or falls.

If the price then moves in the direction you predicted, you make a profit when you close the trade. If you close the trade and the price has moved against you, you will incur a loss. At no time do you take ownership of the asset, you are speculating on the price only. This means you can profit from downward movements in price as well as when prices are going up.

Forex trading courses offered by Plan B show you how to trade Forex, irrespective of whether you use a Forex account or spread betting. This means Plan B Forex courses are great for learning the skill of trading.

Courses teach methods that are legal in your place of residence. For example, courses in the USA exclude spread betting and teach trading using Forex accounts.

How do I start trading?

Many professional traders start with the question: “How do I start trading?”. Whether your trading will be for a few minutes each day, or evolve into a full-time career choice, you need to think like a professional trader in order to become one. Why? Because professional traders are the ones making profits from trading the markets.

Imagine starting a salaried position on a trading floor as a trainee trader. Your employer tells you “Here is our bank account, take a few thousand pounds for your trading account. Here is your computer, why don’t you just have a go and see how you get on”. It’s an unlikely scenario.

Just as unlikely would be the same employer suggesting you nip down to the library and see what you can find out. Or perhaps suggesting you could buy a strategy for a few bucks off the internet.

When it is written out like this, it is easy to see why this approach is not going to work. Many amateurs have a go and lose money, handing it to the professionals in the process. So what do professional traders do that is different?

For a start, they understand that trading is a skill. To learn a skill requires education. They also know that education is the start of the process, not the end. Whilst you can learn information and knowledge from a book, you cannot learn a skill. You can learn to recognise traffic signs, but you can’t learn to drive from a book.

Professional traders build on their education by spending time with other traders, getting feedback from them, developing and honing their trading skills. Also, recognise that skills improve over time, the more you trade, the better you will get. Becoming a perfect trader might seem an impossible goal, but without doubt, it is the right mission to take on.

It’s not just trading that this applies to, it is any skill. You learned your existing trade or profession in this way. Having learnt your existing skills, it did not stop you developing and improving them as your career progressed. Recognise that as a skill, trading is no different to any other skill in this regard. It is probably the first step to becoming a successful trader.

What is a demo account?

Many brokers offer “demo” accounts to help you try out trading before you start to trade for real. Demo accounts are normally provided free of charge and can be a useful way of becoming familiar with the process of placing and managing orders in the markets, especially if you have never traded before.

Don’t rely on a demo account though, other than for the look and feel of the software. It will not be the same as trading and you will not make the same decisions when there is no real money on the table. You won’t feel the emotions of winning or losing in the markets either.

Many brokers apply a time limit to these accounts, meaning you have four weeks or a month of practise trading before the account is automatically closed. You would be expected to sign up for a live account during this time.

When you attend Trading 101, you will receive education to use your broker account effectively. You will learn to trade with low risk using very small amounts of money initially. This is live trading and you will experience the full range of emotions involved when you trade using real funds.

You will take far greater care with your trading and planning when there is real money on the table. For these reasons, demo accounts have limited application.

What is a Forex Strategy?

A strategy is defined as a carefully devised plan of action to achieve a goal or the art of carrying out such a plan.

In Forex trading terms, this means having all aspects of a Forex trade planned before the trade is taken. Plan your trade and trade your plan is a comment frequently voiced to new traders.

A Forex trading strategy defines the circumstances under which a trading opportunity exists and precisely how it will be identified. The Forex strategy then defines what measurements to take and how to use them to decide whether the trading opportunity is worth taking.

The Forex strategy will continue and define how much money is to be risked on the trade and will describe when to enter the trade. It will also list the rules for exiting the trade, either for a profit or a loss.

Professional Forex traders stick to the rules of an FX strategy at all times, revisiting the rules based on practical outcomes. Making the rules up as you go along is not going to yield anything other than inconsistent results.

How can I learn Forex trading?

Forex is the largest and most liquid market on the planet, with over $4 trillion traded daily. It is a 24 hour market, meaning you can trade it any time of day or night, from any time zone, anywhere in the world. Some of the price moves and trends place large profits at your disposal.

Have you got what it takes to be professional as a trader? With Plan B you will learn Forex trading in five-days spent with a trader. This is done with two courses, Trading 101 and Trading 201. These are some six weeks apart with practical trading between them. A complimentary one-hour coaching session follows each of the two courses.

Your programme starts with Trading 101 and three days in a classroom with a trader. No prior knowledge of trading is expected. The course delivers both education and hands-on live trading in the markets for you to start trading Forex.

You need spend a few minutes trading each day after the course. Your first complimentary coaching session, Coaching 121, follows a couple of weeks later and provides feedback on your trading so far.

After some six to eight weeks trading experience, continue the education with the second part of the programme, the two-day Trading 201 course. This segment builds on your education and experience so far and adds to your trading skills.

Again, after the course, you need to continue trading, practising and improving your new skills. Your second complimentary Coaching 121 session follows two or three weeks later. Keep trading regularly and book additional coaching sessions if you need them.

What is short selling?

Short selling, or selling short is a common trading technique to profit from falling prices. It means selling the financial instrument before purchase, in effect creating an I.O.U. (I owe you).

Short selling is a normal activity in the currency markets. For example, every currency transaction involves two currencies. In every transaction, you are buying one currency and selling the other one.

So going long and buying EURUSD means buying the Euro and selling the US Dollar. At an exchange rate of 1.2464, that means 100 Euros will cost 124.64 US Dollars.

Going short and selling EURUSD means selling the Euro and buying the US Dollar. At an exchange rate of 1.2464, that means 100 Euros will buy 124.64 US Dollars. This is the same deal as going long or buying USDEUR at an exchange rate of 0.8023, where each US Dollar costs 80.23 Euro cents.

Because of the exchange of currencies and the different ways of quoting exchange rates and currency pairs, going long and short is not given a second thought in currencies. Short selling is possible on other heavily traded markets.

With individual companies and their shares, there can be restrictions on short selling. In some instances, there can even be outright bans.

What is the spread?

When you are trading financial instruments, such as Forex (FX or currencies), you are always quoted two prices. One price is the price the broker will pay for the instrument. In other words, if you are a seller, this is the price you will receive. This is often referred to as the bid price.

The other price is what the broker will charge you for the instrument. In other words, this is what you will pay when you are buying the instrument. This is often referred to as the offer price. A third price is sometimes quoted called the mid-price. This is the price between the bid and offer prices.

When you are looking at financial charts to make buying and selling decisions, it is important to know whether you are looking at the bid, offer or mid-price. The difference between the bid and the offer price is referred to as the spread.

The spread is quoted in units of PIPs. For most major currencies, the fourth decimal place is used to calculate pips, the exception being the Japanese Yen. Take EURUSD as an example, a bid/offer of 1.2429/ 1.2431 has a spread of 2 pips (12431 – 12429 = 2). When currencies are quoted to 5 decimal places, this might be 1.24292/1.24308, or a spread of 1.6 pips (12430.8 – 12429.2 = 1.6). For currency pairs involving the Yen, move the original decimal place two to the left, i.e. read USDJPY exchange rate of 79.82 as an exchange rate of .7982 when calculating pips.

Some brokers make claims of low spreads, others use fixed spreads and others still have variable spreads. Fixed spreads means the difference between the buying price and the selling price remains constant. Variable spreads may be competitive at busy times in the market, but may widen considerably during quiet periods.

The spread is ultimately the profit margin the broker makes on a transaction, the small difference between the buying price and the selling price. When looking at charts (most charts show bid by default), you need to add the spread to the quoted price when you are carrying out a purchase.

What is a stop loss in trading?

“What is a stop loss?” is a regularly asked question when trading and it’s not as complex as many new traders seem to think.

When you take on a trade, you need to have three prices established prior to taking the trade. Without all three prices, you can’t establish whether the trade is worth taking or not. The first price is the price that you are entering the trade. Let’s say you are intending to buy AUDJPY. You will determine the price level you are content to buy this at.

The next price you will determine is the target price, or where you are going to exit the trade to take a profit. This is higher than the price at which you buy the currency. On buying the currency, you of course expect the price to rise to your target so you can bank the profits.

Sometimes it doesn’t quite work like that. Having bought the currency, the price starts to fall. This is where the third price comes into play. How far are you prepared to allow the price to fall before you close the trade? This price is called the stop loss.

You could exit quickly and take a small loss, or allow it to run and take a larger loss. Or do nothing and hope it returns to your purchase price at some point in the future, preferably before it has fallen so low that you have lost all of your trading funds.

As professional traders, the exit price (stop loss) for a small loss is determined before taking the trade. Tell your broker this price by placing a stop loss order, one of the elements of the trade. If the price does drop to this level, the broker then closes the trade automatically and you will incur a limited loss.

How much money do I need to start trading?

We’re often asked ‘How much money do you need to start trading?’ and it’s an important question. Many people think that it takes huge amounts of money to be successful in trading. But, hopefully, you’ll realise that you can start with even modest amounts.

You can open a trading account with as little as £250, or less. But it doesn’t mean that you should. £250 is not really enough money to trade properly. The only way to play the markets with £250 is to gamble with a high risk of loss, and that is not what trading is about.

An initial deposit of £2000 is realistic to practise sound money management in the currency markets. You could get away with a little less than this, but it might put some trades out of reach.

Deposits of £5000 and £10000 are fine too, but caution needs to be exercised when starting with amounts greater than this. Accounts can be held in other currencies, for example, Euros. The amounts quoted here apply when converted to other currencies.

You can always add more money to your trading account when it feels right to do so. Should you have a sum larger than £10000 to trade, consider gaining the experience with a smaller sum. Add further funds to your account as your skills develop and your performance improves.

Don’t forget you’ll need funds to provide your education and training. Your training programme teaches sound risk management principles for you survive the markets. This does not mean you will never lose a little bit of money and you need to be aware of this risks involved in trading.

Talk to a trader
Only you can truly answer the question ‘How much money do you need to start trading?’ But if you have some questions or you could want to have a chat before you book your course just call us on 0203 603 4983 or contact us by email.

How much time should I spend trading?

How much time can you spare? In your first few weeks of trading, you should put in extra time and effort as you gain familiarity with the markets and individual currency pairs.

Allocate at least half an hour each day for trading at around the same time each day. Trading 101 teaches you Forex trading strategies you can use at any time of day, allowing you to trade in your spare time in the evenings if you wish. But you must be disciplined and trade every day.

Other strategies you learn may be traded at specific times of the day. Add these trading times to your agenda if you have the time available to trade at these times.

One advantage of becoming a private financial trader is that you choose your own hours. You can add more time to your starting point of half an hour a day as you become more profitable, eventually becoming a full time trader if you wish.

Although Forex is a 24-hour market, you don’t want to trade it 24 hours each and every day. There’s activity on different currency pairs at different times of day, so pick the time that is most suited to your own schedule. This makes Forex suitable for trading from anywhere in the world.

Having said all of that, the question: How much time should I spend trading? is one that only you can answer.